Asked by
Tasbiha Saeed
on Oct 14, 2024
Verified
Samantha Smoothie's utility function is U(c1, c2) c1c2, where c1 is her consumption in period 1 and c2 is her consumption in period 2.She earns $200 in period 1 and $220 in period 2.Samantha can borrow and lend at an interest rate of 10% and there is no inflation.The number of dollars that Samantha spends in the second period must be
A) more than 200 but less than 220.
B) exactly 220.
C) more than 220.
D) exactly 200.
E) less than 200.
Utility Function
An economic concept representing a user's satisfaction levels with varying consumption of goods or services, ranked from less to more preferred.
Interest Rate
The slice of a loan that generates interest charges for the borrower, often cited as an annual percentage of the yet-to-be-paid loan amount.
Inflation
An economic condition characterized by a general increase in prices and fall in the purchasing value of money.
- Gain insight into the way interest rates influence the behavior of consumers in terms of saving and borrowing.
- Examine how variations in income distribution across different periods affect patterns of consumption.
Verified Answer
MQ
Learning Objectives
- Gain insight into the way interest rates influence the behavior of consumers in terms of saving and borrowing.
- Examine how variations in income distribution across different periods affect patterns of consumption.